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Tesla vs GM : Which Stock Is A Better Buy?

A Tesla super charger station. Image source: Flickr Image.

GM and Tesla are among the well-known industry players in the automotive sector, with both of them racing to develop the next generation of cutting-edge technology in the all-electric vehicle space.

Tesla and GM have been trying to outdo each other by spending billions of dollars on research and development, hoping to create not only better and longer-range electric vehicles but also the emerging self-driving technology.

That said, both companies’ stocks are worth buying and have their respective pros and cons when it comes to investing in their stocks.

This article compares both Tesla and GM in several aspects, including vehicle deliveries, revenue growth and dividends just to name a few and find out which company’s stock is a better buy.

Tesla vs GM in Vehicle Deliveries

Tesla vs GM in vehicle deliveries

Tesla vs GM in vehicle deliveries

The first factor to consider when it comes to which company to invest in would be the growth factor.

When checking out the growth factor, we can look at it from the perspective of vehicle deliveries for both companies.

Since both Tesla and GM are auto manufacturers, vehicle deliveries are crucial indicators that relate to the growth of both companies.

Moreover, vehicle deliveries are closely correlated to the financial well-being, including sales and revenue and therefore, the respective stock prices for both Tesla and General Motors.

In terms of vehicle deliveries, the chart above compares the trailing 12-months (TTM) vehicle deliveries for both Tesla and General Motors for the past 3 years from 2017 to 2020.

According to the chart, the trend of both plots is pretty clear. Basically, both plots are running in the opposite direction.

In simple terms, GM’s vehicle deliveries have been declining while Tesla’s vehicle deliveries have been increasing in the last 3 years.

Between 2017 and 2020, GM’s total vehicle deliveries on a TTM basis have declined quite substantially, as much as 40% since 2017.

As of 2020 Q3, GM’s vehicle deliveries totaled only 3.3 million units which was a far cry from the 5.5 million units achieved 3 years ago.

On the flip side, Tesla’s total vehicle deliveries on a TTM basis has increased quite significantly during the same period.

Between 2017 and 2020, Tesla’s figure went from 103,000 units reported in 4Q17 to as many as 430,000 units reported in 3Q20, representing a growth rate of more than 300%!

On an absolute basis, GM may have delivered nearly 8 times more vehicles than Tesla in the last 12-months, but the growth rate for General Motors pales when compared with that of Tesla.

If you are looking for growth in one of these automakers, Tesla beats General Motors by several miles in terms of vehicle delivery growth.

Tesla vs GM in Automotive Revenue

Tesla vs GM in automotive revenue

Tesla vs GM in automotive revenue

Similar to vehicle deliveries, revenue growth is another important factor to consider when it comes to buying Tesla or General Motors’ stocks.

As such, I have created the chart above to compare both Tesla and GM’s automotive revenue from a TTM standpoint between 2017 and 2020.

Similar to the vehicle delivery chart, the revenue chart also shows that both companies are running in the opposite direction, with Tesla’s automotive revenue ticking up year on year as opposed to the declining trend of GM’s automotive revenue from 2017 to 2020.

From a TTM perspective, Tesla’s automotive revenue has increased by more than 100% over the last 3 years, reaching $24.3 billion as of 2020 Q3, a new high for the company.

In contrast, GM’s automotive revenue has been on a decline between 2017 and 2020, dropping from $137 billion in 4Q17 to only $102 billion in 3Q20.

From a TTM perspective, GM’s sales figures represent a decline of 26% between 2017 and 2020.

While GM’s automotive revenue may have been much higher than that of Tesla on an absolute basis, it has been on a decline year over year and reached the lowest as of 3Q 2020 at $102 billion.

On the other hand, Tesla’s TTM automotive revenue has been on an uptrend and has grown more than 100% as opposed to a decline of 26% for General Motors.

Investors looking for growth should consider buying Tesla’s stocks even when the company’s market cap valuation has already surpassed $500 billion as of this article was published because there are still plenty of growths ahead for Tesla.

As of 3Q 2020, Tesla’s TTM automotive revenue was less than one-fourth of that of General Motors.

Imagine the size of Tesla’s market cap in the future when its TTM revenue is as big as that of General Motors.

Again, Tesla beats General Motors when it comes to revenue growth.

Tesla vs GM in Dividends

Investors seeking income will consider dividends as an important factor when it comes to determining which company to invest in.

Speaking of dividends, income-seeking investors will be disappointed by Tesla’s non-dividend-paying policy.

In fact, Tesla has not paid a single dividend since its IPO in 2010 and will likely remain so in the foreseeable future. Read: Why doesn’t Tesla pay dividends?

While Tesla has not initiated any dividend-paying policy as of today, it does not necessarily mean that the company will do so forever.

It is still possible for Tesla to start paying dividends when the company’s fundamentals improve to the point that it makes loads of money.

On the other hand, General Motors has been a dividend-paying stock since 2014.

However, GM has temporarily suspended its dividend in Q2 2020, due mainly to the COVID-19 disruption to its businesses.

In general, General Motors as well as Ford has been badly affected by the recent COVID-19 outbreak.

As a result, both of them have suspended dividend payout in order to retain cash and liquidity.

While GM has not given any date on which it will start the dividend payout again, in my opinion, GM will most likely resume the cash dividend when the economic outlook improves.

For your information, GM has suspended its dividend prior to 2014 due to a bad business environment but has brought back the dividends once the company’s business regained its footing in 2014 and has not missed a single quarter of dividend payment since then.

Additionally, GM just announced a tremendous recovery in the 3rd quarter of 2020 in terms of total vehicle sales and revenue growth compared to the prior quarter.

If GM’s fundamental as well as business outlook continues to improve in subsequent quarters, the company may resume the dividend payouts as early as 2021.

For now, there is no winner in this comparison since both companies do not pay a dividend.

Not until GM reinstates its cash dividend, the company will remain as a non-dividend paying company.

Tesla vs GM in Profitability

Tesla vs GM in profitability

Tesla vs GM in profitability

Another factor that is just as important as all the previously discussed factors when it comes to which stocks to buy would be the profitability factor.

Similar to revenue and vehicle deliveries, the profitability of both Tesla and General Motors is another crucial factor to consider when figuring out which company to invest in.

Investors who are seeking cash dividends from a company should seriously look at the profitability factor when screening for a stock to buy.

For Tesla and GM, the chart above shows the comparison of both companies’ operating profits or incomes from 2017 to 2020 on a TTM basis.

For your information, the operating profit is a metric that evaluates only a company’s profitability that comes from core businesses while excluding profitability that comes from other ventures, including investments and appreciation of assets.

In this aspect, the operating profit determines the amount of profit left after accounting for only costs and expenses of operating the core business such as costs of sales, R&D and SGA expenses.

In GM and Tesla’s cases, their costs of doing business involve car manufacturing, distribution and sales.

Other than auto manufacturing, GM also involves in providing financial services to retail as well as commercial customers whereas Tesla has its own energy segment.

These are also part of GM and Tesla’s core businesses. As such, the operating profit also evaluates the costs of doing business for these business segments as well.

Coming back to the chart above, we can see that GM’s operating profits have been on a decline from a TTM standpoint while Tesla has operated from losses to profitability between 2017 and 2020.

For GM, it used to generate nearly $10 billion in operating profit back in 2017.

However, GM’s profitability suffered in recent years and dropped to only $3 billion as of Q3 2020 on a TTM basis.

In contrast, Tesla’s operated at a loss of nearly $2 billion back in 2017.

However, Tesla managed to narrow its operating losses starting in 2019 and churned out profitability as of 2020 3Q by generating as much as $1.8 billion in operating income.

While GM’s revenue in 2020 was several times higher than that of Tesla as seen in the previous discussion, its operating profit was only slightly more than that of Tesla on a TTM basis, indicating that GM has been seriously lagging in terms of profit generation.

In short, GM’s core profitability has been declining while Tesla’s core profitability has been increasing from 2017 to 2020.

All in all, Tesla beats GM when it comes to profitability growth.

Tesla vs GM in Free Cash Flow

Tesla vs GM in free cash flow

Tesla vs GM in free cash flow

As the saying goes, cash is king. In the business world, cash is the lifeline of any business.

Without cash, a company would definitely be heading for bankruptcy in no time.

Therefore, whoever holds and generates the most cash will become the kingmaker especially in times of adversity.

For this reason, the chart above was created to showcase the comparison of both Tesla and General Motors’ free cash flow from a TTM perspective.

For your information, free cash flow is calculated by deducting capital expenditures from net cash generated from operating activities.

In the chart above, General Motors generated the most cash between 2017 and 2020, with free cash flow averaging around $7 billion on a TTM basis over the 3 years.

On the contrary, Tesla ran into negative free cash flow back in 2017 before turning around generating nearly $2 billion in free cash flow as of 2020 Q3 on a TTM basis.

While Tesla may have been rolling in cash in recent quarters, it is nowhere near the amount generated by General Motors.

In Tesla’s case, its free cash flow was 3 times less than the amount generated by GM in Q3 2020.

For GM, the company has been a cash cow, generating well over $7 billion in free cash flow on average from a TTM standpoint over the last 3 years.

In the long run, companies that generate plenty of cash will thrive as opposed to companies that generate little to no cash.

To this end, GM beats Tesla hands down when it comes to free cash flow generation.

Again, Tesla may have generated less cash than General Motors in the past few quarters, however, its amount keeps growing every quarter.

Keep in mind that Tesla’s free cash flow has been improving drastically year over year and quarter over quarter whereas GM’s free cash flow has been more or less the same except for the Q2 2020 quarter when its free cash flow seriously dropped to only $2.3 billion on a TTM basis.

Similarly, investors who are seeking dividend income should opt for a company like GM in which it has a stable and steady free cash flow.

Summary

Overall, we can see that Tesla’s stock is growth-oriented whereas GM’s stock is income-oriented.

Tesla has been showing growth in most areas, including vehicle sales, revenue, profitability and free cash flow.

On the other hand, GM shows that it has been generating a steady and stable free cash flow while suffering a decline in vehicle deliveries and revenue.

GM used to pay out dividends but has suspended it indefinitely. I believe GM will reinstate its dividends once its fundamentals continue to improve.

In short, the question of which stock is a better buy, be it Tesla or General Motors, will largely depend on what the investors are seeking.

For example, for investors who are income-oriented and are looking for a non-volatile stock, General Motors would be a better bet.

Alternatively, for investors who are growth-oriented, Tesla would most likely be the best bet.

References and Credits

1. Financial data and numbers in all charts in this article were obtained and referenced from General Motors’ and Tesla financial statements available in: GM SEC filings and Tesla SEC filings.

2. Featured images in this article are used under Creative Common licenses and obtained from the following source: Alpha and Marco Verch.

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